Will RBI hold repo rate? 5 things to look out for in MPC

The repo rate, at which the central bank lends short-term funds to banks, stands at 6.5 percent. The central bank has kept it unchanged since April 2023.

Will the MPC change the repo rate in this round? Unlikely.

The majority of the economists and bankers who participated in the Moneycontrol poll said the central bank may leave key rates unchanged.

If the central bank keeps repo rate unchanged, it will then be the 10th consecutive time of no rate action.

Monetary policy stance

The RBI's policy stance indicates the thinking within the MPC, the rate-setting panel. Currently, its stance is of withdrawal of accommodation.

An accommodative stance indicates that the tilt is towards a rate cut, while a neutral stance suggests rate action can happen on either side.

In the monetary policy poll of Moneycontrol, a section voted for a change in stance to "neutral", while the rest said the central bank will stick to its "withdrawal of accommodation" position.

GDP growth target

Experts expect the central bank to maintain gross domestic product (GDP) growth numbers in the upcoming MPC meeting.

In the last MPC meeting, the real GDP growth for 2024-25 was projected at 7.2 percent with Q1 at 7.1 percent; Q2 at 7.2 percent; Q3 at 7.3 percent; and Q4 at 7.2 percent. Real GDP growth for Q1:2025-26 is projected at 7.2 percent.

India’s economic growth slowed to a five-quarter low of 6.7 percent in Q1 of this fiscal year (2024-25) from 7.8 percent in the preceding March quarter, as government consumption contracted owing to election-related activity, according to data released on August 30.

Inflation target
Most economists and bankers said that the RBI may not change the inflation projection in the upcoming policy, but remained cautious on the upside risk due to growing food inflation.

India’s inflation rose slightly to 3.65 percent in August, as compared to 3.6 percent in the previous month. A favourable base from last year helped contain consumer inflation, despite an uptick in prices in food categories.

In August MPC meeting, CPI inflation for 2024-25 was projected at 4.5 percent with the second quarter (Q2) at 4.4 percent; Q3 at 4.7 percent; and Q4 at 4.3 percent. CPI inflation for Q1:2025-26 was projected at 4.4 percent.

Liquidity measures
RBI is unlikely to announce any liquidity measures in the October monetary policy and may continue to withdraw liquidity through variable rate reverse repo (VRRR) auctions, money market experts said.

They added that the central bank might keep liquidity in surplus mode considering the expected outflows during the festive season, tax outflows and currency leakage.